Google (NASDAQ:GOOG) (NASDAQ:GOOGL) has just announced that it intends to integrate Samsung's Knox Security technology into Android in a move that could potentially change the enterprise mobility market in a big way.
The full capabilities of Knox will be integrated natively into Android ''L,'' Android's latest version that is set to be released later this year. It will help users gain access to Knox's data-separation capabilities, which allow both personal and corporate identities to co-exist on a single device. Existing Android devices will be able to download a Knox app from Google Play.
Enterprise mobility growing twice as fast as consumer mobility
A study done by ABI Research two years ago found that enterprise made up about 30% of the mobility market (voice, messaging, mobile broadband, handset data plans, enterprise apps and management services), while the consumer market accounted for about 70%. The enterprise mobility market is, however, growing twice as fast as the consumer market, and ABI predicted that this market would reach $340 billion by 2017.
Although Android sits atop the smartphone OS throne with a 78.9% share of the global market vs. 14.9% for Apple's (NASDAQ:AAPL) iOS, the numbers flip completely for enterprise mobility, where iOS commands 71% of the market and Android sits at just over 25%.
Security concerns have remained the biggest roadblock to Android's successful penetration into the enterprise mobility market. Much of this is caused by the deep fragmentation of Android OS, which also contributes to non-uniform user experiences and has led enterprises to shun the platform.
Samsung Knox has for long been the go-to solution for Android enterprise users. Knox comes with two distinct capabilities: a secure boot feature that ensures the security of a device is intact when the phone is booted from a sleep state, and APIs that control how the phone behaves and help to activate even higher security features. Since Knox plays into the behavior of the phone itself, this can improve integration by providing a more uniform user experience.
Why Knox on Android could be a game-changer for Google
iOS enjoys a much bigger market share in developed economies such as the U.S. -- 41% vs. 52% for Android -- than in developing economies.This is a big problem for Google since not all mobile ad revenue streams are created equal. Google Web searches done on iPhones and non-Android devices are not quite the same as those conducted on Android smartphones. It would be in Google's best interest to have more people conducting Web searches on Android smartphones than on iPhones and other non-Android devices. Knox on Android has the potential to get more people, and enterprises, using Android.
When an Android device is signed into a Google account, and is running Google apps such as Search and Maps, it generates a constant stream of data for Google, such as the user's location, where he or she works, frequently dialed phone numbers, and so on. Google collects this information, then applies it to apps like Google Now. But, more importantly, Google mines loads of important data from Android users, which it then uses to improve search and advertising relevance.
Google, however, receives much less important data from iPhones, non-Android devices such as Kindle tablets and iPads, and cheap Android smartphones. Desktop users also do not generate as much data for Google, even when they use Google's Chrome browser.
Additionally, non-Android devices do not download Google Play apps, another important revenue stream for Google.
Google Play generated revenue of $2.5 billion for Google last year, and grew 67% compared to 15% for Apple's App Store. Since the enterprise mobility market makes up roughly 30% of the entire mobility market, this in turn could mean that approximately $800 million of Google Play's revenue came from enterprise spending on mobile apps. App Store, however, made twice as much revenue from app downloads as Google Play.
An enterprise mobility study done by Citrix last year found that 6% of all apps used by enterprises were mobile apps, with the figure expected to grow to 9% in 2014.
If the volume of mobile apps downloaded by enterprises grows by 50% this year as implied by the Citrix study, Google Play might realize revenue of $1.2 billion from enterprise spending on mobile apps alone in 2014, and another $2.5 billion from consumer mobile app spending.
Now let's assume that Android's Knox integration manages to persuade half of businesses to use Android, up from 25% currently, and enterprise ad spending on mobile apps grows at a CAGR of 20% through 2018. This in turn would mean that Google Play might realize as much as $4.2 billion in revenue from enterprise spending on mobile apps by 2018. Without Knox, the revenue earned from enterprise spending on mobile apps would only be half as much.
The Knox integration with Android can potentially have far-reaching benefits for Google by not only streamlining its mobile ads, but also by accelerating enterprise mobile app spending on Google Play.
Joseph Gacinga has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.